The FSA's stance on past performance remains unchanged, despite a review it commissioned into persis...
The FSA's stance on past performance remains unchanged, despite a review it commissioned into persistency of returns finding such data could be useful to consumers in certain instances.
There are still no plans to include past performance data in the FSA's comparative tables and as yet no further research into past performance has been commissioned by the regulator although a consultation paper is set to be issued in May.
The FSA commissioned report, 'Performance Persistence in Mutual Funds' was an independent review of the IMA-prompted Charles River Associates research, completed in October 2002.
The review, prepared for the FSA by professors David Blake and Allan Timmerman of the universities of London and California, respectively, concluded past performance data is a sufficiently useful tool to consumers that it should be included in the FSA's comparative tables.
Even so, the review criticised Charles River's use of non risk-adjusted returns as the basis for its work. The authors believe risk-adjusted returns should be used to enable like for like comparisons and to avoid investors heading for high risk funds, which will tend to outperform over the long-term. The use of risk-adjusted returns also dramatically reduces incidences of persistence of strong returns, but highlights greater incidences of persistence of underperformance than Charles River's study did using raw returns.
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